Oil bulls lose momentum after IEA lowered outlook

Demand Confusion!

The oil bulls that were riding a wave of bullish demand optimism lost confidence after the International Energy Agency said that perhaps traders shouldn’t be just that excited. The International Energy Agency unlike OPEC and the Energy Information Administration actually lowered its outlook by 90,000 barrels a day. The reduction in the IMF outlook for Europe seems particularly ominous,” the Paris-based agency said in its monthly oil market report. “Despite signs of improvement in China and the U.S., weak macroeconomic conditions are forecast to keep global oil demand growth capped.” Now normally this is an organization that likes to error on the upside when it comes to predicting demand so it seems that this put some pause in the reawakened bull traders.

This seemed to overshadow what was a supportive crude drawdown in Cushing, Oklahoma in the Energy Information Administration report. The EIA reported that U.S. commercial crude oil inventories increased by 0.6 million barrels from the previous week. At 372.2 million barrels, U.S. crude oil inventories are well above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.8 million barrels last week but remained in the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 3.7 million barrels last week and are below the lower limit of the average range for this time of year.

Fracking is changing the energy world, and now Russia has to come to grips with the fact that when they are not the biggest pricier on the street, of course that means you can’t be the biggest bully. Russia under Putin has jailed the owner of Yuko’s and took over his company, sent shockwaves across Europe when it cut off supply to the Latvia, Ukraine and Belarus and has threatened to cut off others. In a report by the Swedish Defense Swedish Defense Research Agency's 110-page study Nord Stream, Sweden and Baltic Sea Security (2007) counted over 55 incidents (cut-offs, explicit threats, coercive price policy and certain takeovers) since 1991, most with political or economic underpinnings. Yet now with rising global production and Europe looking for alternatives, it seems those tactics are staring to backfire.

The “Energy Expert Center” wrote that “In 2012 Russia’s budget has received tens of billions of rubles less than it was supposed to because of a decline in the gas exports, Russian President Vladimir Putin said due to a use of declining gas exports.”

Putin said that the LNG market is becoming increasingly significant. “Today our share in the global LNG supplies is just 3.6%. So, unless we are active, we may fully cede this market to our rivals. We should keep in mind that in order to create modern LNG production capacities, we need 5-7 or even 10 years.”

Putin suggested drafting and approving a new mineral resource classification, which will be as close to the international standards as possible. “We have just discussed this component with our colleagues from the government and some companies. Experts see lots of good things in our evaluation system. So, we will try to make it as clear as possible for our foreign colleagues,” the President said. He also suggested no longer keeping secret how many resources the country has because, in his opinion, secrecy is anachronism. “We need specific rules for developing our mineral deposits and must thoroughly evaluate them from the very beginning. We must consider all factors that may affect their efficiency,” Putin said.

Maybe he should try apologizing to Europe for cutting off supply and to quit bullying other producers. See life is not as easy when you don’t have a monopoly. Natural Gas Report today!! Get ready for the next big move!

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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